March 02, 2017

Gujarat Microwax Private Limited

Instrument* Rated Amount Rating Action
(in crore)
EPC/PCFC/FBD/EBR 15.00 [ICRA]A- (Stable) upgraded
from [ICRA]BBB
FBD/EBR- sublimit to EPC/PCFC/FBD/EBR (15.00) [ICRA]A- (Stable) upgraded
from [ICRA]BBB
Cash Credit-sublimit to EPC/PCFC/FBD/EBR (15.00) [ICRA]A- (Stable) upgraded
from [ICRA]BBB
Letter of Credit 11.00 [ICRA]A2+ upgraded from
[ICRA]A3+
Bank Guarantee 0.75 [ICRA]A2+ upgraded from
[ICRA]A3+
Credit Exposure Limit 1.78 [ICRA]A2+ upgraded from
[ICRA]A3+
Total 28.53
*Instrument Details are provided in Annexure-1

Rating Action

ICRA has upgraded the long term rating outstanding on the Rs. 15.00 crore bank facilities of Gujarat
Microwax Private Limited (“GMPL” / “the company”) to [ICRA]A- (pronounced ICRA A minus)1 from
ICRA]BBB (pronounced ICRA triple B). ICRA has also upgraded the short term rating outstanding on
the Rs. 13.53 crore bank facilities to [ICRA]A2+ (pronounced ICRA A two plus)2 from [ICRA]A3+
(pronounced ICRA A three plus) of GMPL. The outlook on long term rating is stable.

Rationale
The rating upgrade takes into account the improvement in the company’s financial risk profile, marked by
gradual increase in profitability over the last three years on account of increasing proportion of
disintegrators in sales mix; robust liquidity profile marked by significant free cash and liquid
investments as of December 31, 2016 and strong capital structure and coverage indicators. The ratings
continues to take into account the long experience of the promoters and the leading position of the
company in the excipients industry and the benefits arising from the joint venture with JRS Pharma in
terms of raw material procurement, technological expertise and marketing of its products.

The rating is, however, constrained by high working capital intensive business driven by high inventory
levels as well as the moderate scale of operations due to the presence in product segments with modest
market size. ICRA notes that the company’s profitability remains exposed to raw material price variations
and fluctuations in foreign currency as a major part of the company’s transactions consist of exports and
imports; though partially mitigated by natural hedge.

ICRA expects the financial risk profile of the company to remain strong with low dependence on external
borrowings, with no impending plans to avail any further debt; large liquid investments and robust
internal accruals. The scale of the operations is expected to exhibit a moderate growth in the current fiscal

1 For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications
2 For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications
and further, the growth will remain contingent upon the timely commencement of the new disintegrant
facility. The ability of the company to scale up the operations while maintaining its profitability and
efficiently manage its working capital cycle would remain the key rating sensitivity.

Key rating drivers

Credit Strengths
● One of the leading manufacturers of a range of microcrystalline cellulose powder (MCCP) in India
● Joint venture with JRS Pharma strengthens the business profile and marketing reach of the company
● Comfortable liquidity position (free cash and current investments of Rs. 72.67 crore as on December
31, 2016) coupled with low debt levels results in robust capital structure and debt coverage indicators
● Increase in operating profitability over the last three years due to higher proportion of disintegrators
in sales mix

Credit Weakness
● Moderate scale of operations due to its presence in product segments that have modest market size
● Profitability indicators remain vulnerable to fluctuation and availability of key input material prices
and to movement in foreign exchange
● High working capital intensity due to high inventory levels

Description of key rating drivers highlighted above:

GMPL has improved in terms of its financial risk profile, marked by gradual increase in profitability over
the last three years on account of increasing proportion of disintegrators in sales mix; robust liquidity
profile marked by significant free cash and liquid investments as of December 31, 2016 and strong capital
structure and coverage indicators. The capacity utilisation of the MCCP plant (Unit-1) continues to be
more than 100% in FY2016 and 9M FY2017 and that of SSG/CCS (unit-2) during the same period
remains nearly fully utilized. Unit-2 requires change-over process from CCS to SSG and vice versa,
hindering the company from fully utilisation of its capacities. The company has set-up new facilities for
enhancing its current facility for CCS/SSG by 1500 MTPA. The company continues to derive a majority
of its sales from exports, which contributed ~73% and 69% in FY2016 and 9MFY2017 respectively. The
company sells its products primarily through direct sales as well as through an established distributor
network. JRS Pharma is essentially responsible for promoting, selling and distributing products
manufactured by GMW across key markets. The company benefits from established sales and distribution
network of JRS across key markets, besides getting access to the advanced R&D and technical
capabilities.

Analytical approach:
For arriving at the ratings, ICRA has considered the business and the financial risk profiles of Gujarat
Microwax Private Limited (GMPL).

Links to applicable Criteria

Corporate Credit Ratings: A Note on Methodology
Rating Methodology for Pharmaceutical companies

About the Company:

Incorporated in 1989, Gujarat Microwax Private Limited (GMW) is an Ahmedabad-based company,
engaged in manufacturing of microcrystalline cellulose powder (MCCP), used as an excipient in the
pharmaceutical and food ingredient industry. The company also commenced manufacturing of
disintegrators in FY2008. GMW is the flagship company of the Ahmedabad-based Jhajharia family,
 which has business interest in areas including manufacturing of industrial waxes, trading in bulk drugs
and tissue culture. Building on its experience in the industrial waxes business, the group decided to enter
into manufacturing of MCCP in 1989 under GMW by building a manufacturing facility at Nandasana
(near Ahmedabad). In 2006, a German company and a worldwide market leader in cellulose products,
JRS Pharma (JRS) acquired 50% stake in the company to have manufacturing presence in India. At
present, GMW is a 50:50 JV between the Jhajharia family and JRS Pharma GmBH & Co KG with equal
representation on a board of four directors. Currently, the company has an installed capacity of 3600
MTPA for manufacturing of MCCP and 1500 MTPA for manufacturing of disintegrators (SSG/CCS) in
Gujarat.

JRS, a closed entity is a group company of the JRS Group, concentrates on the pharmaceutical and
nutraceutical market and is a leading global supplier of excipients.

Status of non-cooperation with previous CRA: Not Applicable.

Any other information: Not Applicable.

Rating History for last three years:

Table: Rating History
S. Name of Instrument Current Rating Chronology of Rating History for the past
No 3 years
Type Rated Month Month & Month- year Month- year
amount &year year Rating & Rating in & Rating in
(Rs. Rating in in 2016 2015 2013
Crores) 2017
March 2017 October May 2014 February
2015 2013

1 EPC/PCFC/FBD/EBR Long term 15.00 [ICRA]A- [ICRA]BBB [ICRA]BBB [ICRA]BBB-

(Stable) (Stable) (Stable) (Stable)
2 FBD/EBR- sublimit to Long term (15.00) [ICRA]A- [ICRA]BBB
(Stable) [ICRA]BBB [ICRA]BBB-
EPC/PCFC/FBD/EBR (Stable) (Stable) (Stable) (Stable)
3 Cash Credit-sublimit to Long term (15.00) [ICRA]A- (Stable)
[ICRA]BBB [ICRA]BBB [ICRA]BBB-
EPC/PCFC/FBD/EBR (Stable) (Stable) (Stable) (Stable)

4 Letter of Credit Short term 11.00 [ICRA]A2+ [ICRA]A3+ [ICRA]A3+ [ICRA]A3

5 Bank Guarantee Short term 0.75 [ICRA]A2+ [ICRA]A3+ [ICRA]A3+ [ICRA]A3

6 Credit Exposure Limit Short term 1.78 [ICRA]A2+ [ICRA]A3+ [ICRA]A3+ [ICRA]A3

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly
Complex". The classification of instruments according to their complexity levels is available on the
website www.icra.in
Annexure-1
Details of Instruments

Name of the Date of Coupon rate Matur Size of Current Rating and
instrument issuance ity the issue Outlook
Date (Rs. Cr)
EPC/PCFC/FBD/E November Libor +2% - [ICRA]A- (Stable)
BR 2016 15.00
FBD/EBR- sublimit November Libor +2% - [ICRA]A- (Stable)
to 2016
EPC/PCFC/FBD/E
BR (15.00)
Cash Credit- November 10.90% - [ICRA]A- (Stable)
sublimit to 2016
EPC/PCFC/FBD/E
BR (15.00)
November - - [ICRA]A2+
Letter of Credit 2016 11.00
November - - [ICRA]A2+
Bank Guarantee 2016 0.75
Credit Exposure November - - [ICRA]A2+
Limit 2016 1.78
Source: Bank’s Sanction letter

Name and Contact Details of the Rating Analyst(s):

Analyst Contacts

Subrata Ray Suprio Banerjee

+91 22 2433 1086 +91 22 6114 3443
subrata@icraindia.com supriob@icraindia.com
Mayank Agrawal
+91 79 4027 1514 Suman Makhija
mayank.agrawal@icraindia.com +91 79 4027 1525
suman.makhija@icraindia.com

Name and Contact Details of Relationship Contacts:

Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com
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